Is Daesung Hi-Tech (KOSDAQ:129920) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Daesung Hi-Tech Co., Ltd. (KOSDAQ:129920) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Daesung Hi-Tech

What Is Daesung Hi-Tech's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Daesung Hi-Tech had ₩102.9b of debt, an increase on ₩90.0b, over one year. However, it does have ₩8.98b in cash offsetting this, leading to net debt of about ₩93.9b.

A Look At Daesung Hi-Tech's Liabilities

According to the last reported balance sheet, Daesung Hi-Tech had liabilities of ₩98.3b due within 12 months, and liabilities of ₩35.7b due beyond 12 months. On the other hand, it had cash of ₩8.98b and ₩23.7b worth of receivables due within a year. So its liabilities total ₩101.3b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the ₩45.5b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Daesung Hi-Tech would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Daesung Hi-Tech can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Daesung Hi-Tech made a loss at the EBIT level, and saw its revenue drop to ₩93b, which is a fall of 10%. That's not what we would hope to see.

Caveat Emptor

Not only did Daesung Hi-Tech's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping ₩8.5b. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩15b over the last twelve months. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Daesung Hi-Tech is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.